Google Chrome Breakup Could Wipe 25% Off Alphabet Stock

• Alphabet (GOOG, GOOGL) faces a potential 15% to 25% stock price drop and a 30% hit to earnings per share if ordered to divest its Chrome browser, which contributes 35% of Google’s search revenue with its 4 billion users, according to Barclays analysts.
• The U.S. Department of Justice, following Google’s August 2024 antitrust loss, is pushing for remedies including Chrome divestiture, search data sharing, and banning exclusivity agreements, with a court decision expected in August.
• Alphabet’s stock closed at $169.03 on Monday, down 1.58%, reflecting investor concerns over the ongoing antitrust case, with the company planning to appeal the ruling.

The ongoing antitrust battle between Alphabet (GOOG, GOOGL) and the U.S. Department of Justice has cast a significant shadow over the tech giant’s future, with potential ramifications for its stock price and market dominance. Barclays (BCS) analysts, led by Ross Sandler, highlighted in a Monday note to investors that a forced divestiture of Google’s Chrome browser could trigger a sharp decline in Alphabet’s stock, projecting a potential drop of 15% to 25%. Such an outcome, described as a “black swan event,” could also deliver a 30% blow to Alphabet’s earnings per share, given Chrome’s 4 billion users and its contribution to 35% of Google’s search revenue.

The antitrust case, which concluded its liability phase in August 2024, saw U.S. District Judge Amit Mehta rule against Google, finding it guilty of monopolizing the markets for general search and general search text ads. These ads, displayed prominently at the top of search results, are a cornerstone of Google’s revenue model. The remedies phase, which wrapped up closing arguments last Friday, has intensified scrutiny on Google’s business practices. The Department of Justice pushed for structural remedies, including divesting Chrome, sharing search data with competitors, and banning exclusivity agreements that cement Google as the default search engine on mobile devices and browsers. While Sandler noted that the likelihood of a Chrome divestiture remains low, the closing arguments elevated its perceived probability, prompting heightened investor concern.

Alphabet’s Chrome browser is a critical asset, not only for its massive user base but also for its role in funneling traffic to Google’s search engine, which powers the company’s advertising revenue. A divestiture would disrupt this ecosystem, potentially benefiting well-funded AI-driven companies like OpenAI, Anthropic, or Perplexity, which Barclays identified as likely buyers. Such a move would reshape the competitive landscape, giving rivals access to a browser with unparalleled market reach. The uncertainty surrounding Judge Mehta’s forthcoming remedy decision, expected in August, has already contributed to Alphabet’s stock volatility. On Monday, shares closed at $169.03, down $2.71 or 1.58%, reflecting investor unease. Year to date, the stock has declined nearly 11%, despite Alphabet’s $2.09 trillion market capitalization.

The broader implications of the case extend beyond Chrome. Google’s dominance in search, reinforced by default agreements with device manufacturers and browser developers, has long been a target for regulators. The Department of Justice’s push to share search data with competitors aims to level the playing field, particularly for emerging AI-driven search platforms. However, Google argues that such measures could stifle innovation and weaken its ability to compete globally. The company’s intent to appeal, announced Saturday, signals a protracted legal fight that could delay any remedies but does little to alleviate near-term investor concerns.

Sandler’s ‘Overweight’ rating on Alphabet reflects cautious optimism, acknowledging the company’s strong fundamentals despite the antitrust headwinds. However, the remedies hearing revealed a spectrum of potential outcomes, with moments that left analysts both more and less pessimistic about the stock’s trajectory. The possibility of a severe remedy, like a Chrome divestiture, remains a significant risk, as no investors Sandler consulted anticipated such an outcome. Alphabet’s ability to navigate this legal challenge will be critical to maintaining its position as a tech titan, with the August ruling poised to shape its financial and competitive future.

WallStreetPit does not provide investment advice. All rights reserved.

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